Since the beginning of this year, the global economic and trade pattern has undergone profound adjustments. Since the beginning of the year, the U.S. dollar index has fluctuated at a high level, and the onshore RMB exchange rate against the U.S. dollar has bucked the trend and appreciated by more than 3%.
The intensification of exchange rate fluctuations has caused many foreign trade companies to suffer from exchange losses, and the difficulty of corporate exchange rate risk management has significantly increased.
From listed companies to small and medium-sized foreign trade factories, exchange risk has become a common operating problem. Problems such as long-term settlement, single currency, and large risk exposure have further amplified operating pressure.
In this context, exchange rate hedging tools such as forward foreign exchange settlement and sales have become an important way for enterprises to maintain profits.
As regulators continue to promote the concept of exchange rate risk neutrality, continue to enrich hedging products and lower hedging thresholds, banks across the country have also taken the initiative to provide services, and corporate risk aversion willingness has increased significantly compared with previous years.
The latest data from the State Administration of Foreign Exchange shows that in the first four months of this year, the scale of corporate foreign exchange derivatives transactions increased by 22% year-on-year, and the foreign exchange hedging rate was 33.6%, an increase of 3.7 percentage points from 2025.
However, some enterprises still have a unilateral game mentality. Problems such as insufficient awareness of small, medium and micro enterprises and the lack of fault-tolerant decision-making mechanisms of large and medium-sized enterprises are still the main obstacles to the advancement of exchange rate hedging.
Since April 2025, the RMB has experienced a round of sustained and relatively rapid appreciation. The onshore RMB exchange rate against the US dollar has risen from the lowest point of 7.3518 to the current 6.7641, with an appreciation rate of nearly 8%, of which the appreciation so far this year is approximately 3.22%.
The current round of continued appreciation of the RMB has had a significant impact on the operations of foreign trade companies. Exchange losses caused by exchange rate fluctuations have continued to erode export profits of companies. Many foreign trade companies have fallen into the operating dilemma of “increasing revenue without increasing profits”.
Zhang Yu, deputy director of Huachuang Securities Research Institute, analyzed in a research report that in the second half of 2025, the drag on profits from exchange losses will be significantly magnified.
The scale of exchange losses of all A-share non-financial listed companies increased rapidly, reaching 5.2% of the net profit attributable to the parent company during the same period; its year-on-year increase was approximately 54.7 billion yuan, while the net profit attributable to the parent company during the same period decreased by 54.5 billion yuan year-on-year.
In other words, the marginal expansion of exchange losses is basically equivalent to the year-on-year decline in net profit attributable to the parent company, and is one of the important explanatory variables for the pressure on earnings in the current period.
To put it simply, the appreciation of the RMB means that the amount of exchange of foreign currencies such as US dollars for settlement has shrunk. From overseas order placement to final payment, slight exchange rate changes during the period can eat into the company’s originally meager product profits.
For example, assume that 1 U.S. dollar is exchanged for 7.3 yuan during the order signing stage, and a receivable of 1 million U.S. dollars is valued at 7.3 million yuan. If the exchange rate rises to 7 when the payment is collected, the company will only record 7 million yuan in actual foreign exchange settlement, and a single business will generate an exchange loss of 300,000 yuan out of thin air.
In addition to transactional losses arising from export receipts, exchange losses also involve translation losses arising from the consolidated statements of overseas subsidiaries.
Double losses will squeeze the net profit margin.
In interviews, China Business News reporters found that many companies have typical risk characteristics such as single currency, long collection periods, obvious risk exposures, and insufficient hedging experience.
Taian Linge Home Furnishing Co., Ltd., located in Laocheng Industrial Park, Feicheng City, Shandong Province, is mainly engaged in the export of home textile products, with an annual export volume of US$16 million.
However, corporate foreign trade settlement is highly dependent on the single currency of the U.S. dollar. 85% of orders use 90-day forward letters of credit, and the payment cycle is generally as long as 3 to 6 months.
Due to the lack of experience in exchange rate risk management, there have been many passive situations of “making profits when signing orders, but shrinking profits when settling foreign exchange”. Enterprises have an increasingly urgent need for value preservation and hedging.
As we enter the first quarter of 2026, the profit impact caused by exchange rate fluctuations is also intuitively reflected in the financial reports of leading listed companies.
BYD (002594.SZ)’s first quarter report for 2026 shows that it achieved net profit attributable to the parent company of 4.085 billion yuan, a year-on-year and quarter-on-quarter decrease of 55.4% and 56.0% respectively. In addition to the impact of reduced revenue, the decline in performance was also significantly affected by a year-on-year increase of 4.01 billion yuan in financial expenses (the appreciation of the RMB in the first quarter obviously caused large exchange losses).
In the first quarter, tire leader Linglong Tire (601966.SH) achieved revenue of 6.057 billion yuan, a year-on-year increase of 6.33%. However, affected by violent exchange rate fluctuations, pre-tax exchange losses reached 267 million yuan, directly eating up most of the company’s profits. In the end, it only achieved a net profit attributable to the parent company of 16.8935 million yuan, a year-on-year decrease of 95.04%.
Exchange rate risk has evolved into a common operating problem in the foreign trade industry, and it is urgent to establish a complete exchange rate risk management system.
For current foreign trade companies, exchange rate hedging is no longer a dispensable “option”, but a “required course” for the company’s stable operation.
Among many hedging tools, the most basic hedging method is hedging and foreign exchange locking, and the corresponding core business of banks is forward foreign exchange settlement and sales.
As the most universal and urgently needed hedging product, forward foreign exchange settlement and sales operations have clear logic, simple structure and low threshold.
Enterprises can agree with the bank in advance on the future delivery time, transaction currency, transaction exchange rate and transaction amount, and complete the settlement or purchase of foreign exchange at the agreed price upon expiry to achieve complete lock-in of forward exchange costs.
This basic hedging tool has become the core tool for export companies to resist exchange rate fluctuations and maintain operating profits.
In view of the long-term export repayment risk, China Construction Bank Shandong Tai’an Branch customized a forward exchange settlement plan for Tai’an Lingo Home Furnishings to match the company’s multi-cycle repayment characteristics. In January this year, it launched 1-month, 2-month, and 3-month forward exchange settlement contracts, with a single amount of US$600,000.
By locking the foreign exchange settlement rate in advance, the three contracts added a total of RMB 144,300 to the company after expiration.
“Exchange rate fluctuations directly affect the revenue and profits of foreign trade companies. Enterprises cannot passively bear exchange profits and losses and need to proactively carry out exchange rate risk management. Hedging is like wearing a seat belt while driving, which can protect operating income when exchange rates fluctuate significantly.” said a product manager of the Financial Market Department of Bank of China Shenzhen Branch.
He introduced specific cases where forward exchange settlement and other hedging tools have effectively helped companies avoid exchange rate risks.
He said that at the beginning of the year, he took over a manufacturing company. The company signed a foreign trade order of US$2 million, and the payment would not be returned until three months later. The person in charge of the company was very worried that exchange rate fluctuations would swallow up all profits.
So based on the order situation, we processed a three-month forward exchange settlement, locked in the settlement exchange rate of about 6.95, and successfully locked in the order profit.
In recent times, the internal and external environment of the foreign exchange market has been complex and changeable. The flexibility of the RMB exchange rate has increased significantly. Short-term rises and falls have frequently alternated, and two-way fluctuations have become the market norm.
Uncertainty about exchange rate trends continues to amplify, significantly raising the exchange gain and loss risks of foreign trade companies.
How to guide foreign trade companies to build a solid exchange rate risk management barrier?
The National Foreign Exchange Administration Work Conference held at the beginning of the year clearly stated that it would support the development of simple and easy-to-use exchange rate hedging products and reduce the hedging costs of small, medium and micro enterprises.
Under the guidance of top-level design, local financial management departments continue to develop exchange rate hedging services. Relying on local management mechanisms, they clarify core assessment indicators for banks such as hedging rates and new first-time accounts. They guide banks to provide targeted hedging products and hedging plans based on the actual needs of enterprises and their own characteristics, so as to resolve the problem of foreign trade enterprises that “do not understand, dare not, and are unwilling to carry out hedging” and rationally face the rise and fall of exchange rates.
The continued empowerment of policies has changed companies’ understanding and acceptance of exchange rate hedging tools.
This is particularly evident in front-line banking services.
“Companies’ acceptance of exchange rate hedging tools has changed significantly this year compared with the previous two years. In the past two years, the RMB continued to depreciate and the U.S. dollar strengthened. Companies generally believed that holding foreign currencies can naturally increase in value, and their willingness to actively avoid risks was low; this year, exchange rate fluctuations have intensified, and the number of companies coming to consult and handle hedging business has increased significantly.” A staff member of Liaocheng Commercial Bank in Shandong Province told reporters.
Behind the rising market sentiment is an overall jump in the awareness of exchange rate hedging among enterprises across the country.
Taking Shandong as an example, from January to April, the foreign exchange hedging rate of Shandong (excluding Qingdao) reached 38.3%, a significant increase of 8.3 percentage points from 2025; during the year, it served a total of 6,174 companies and accurately solved 2,983 various exchange rate hedging problems.
However, it should be noted that some companies still have misunderstandings of unilateral gaming and ignoring the risk of two-way exchange rate fluctuations.
The above-mentioned Liaocheng Commercial Bank staff said that although regulatory authorities continue to advocate the concept of exchange rate risk neutrality, many foreign-related companies still have obvious cognitive deviations.
“The main problem is the cognitive issues of business entities.” The staff member said that for example, some small and micro enterprises are limited by manpower and energy and believe that exchange rate hedging business will increase additional costs.
Some large and medium-sized enterprises are also worried that the subsequent exchange rate trend will be better than the lock-in price, and it is recommended that enterprises increase the fault-tolerance mechanism for hedging decisions.
